Microsoft Lays Off 1,400; More Coming

In a stunning move, Microsoft this morning unexpectedly pre-announced earnings for its second fiscal quarter that included lower than expected revenues and earnings. The company also issued a bleak outlook and said that it will eliminate 5,000 jobs over the next 18 months, including 1,400 today.

Citing weak PC sales and high demand for netbooks, client revenue of $4 billion declined 8 percent, from $4.3 billion during the same period a year ago, the company said. Netbooks are lower-priced alternatives to traditional desktop and laptop computers.

One bright side was the server and tools business; revenue of $3.7 billion was up 15 percent, Microsoft said.

Overall revenue was $16.63 billion, up a modest 2 percent. Net income of $4.11 billion was down 11 percent, and earnings per share were a disappointing .47, down 6 percent, falling short of analyst consensus.

Microsoft also warned that the business outlook is uncertain for the rest of its fiscal year, and as a result it will no longer offer revenue and earnings per share guidance.

Despite the gloomy news, some analysts were expecting even worse to come out of the announcement. Mary Jo Foley, a longtime Microsoft watcher and columnist for Redmond magazine, reported that rumors circulating around the industry estimated layoffs to be as high as 8,000-15,000 of Microsoft's total workforce of more than 90,000.

As early as last October, Microsoft was considering a hiring freeze, which was reported by some news outlets, citing an internal memo. Microsoft denied the reports.

As Foley linked to in her article, Microsoft had increased its workforce by 14 percent in the previous 12 months.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.